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Dow Suddenly Drops 1,000 Points on Worries Over Greek Debt, Then Recovers

Sources Say Possible Trading Error at Citigroup to Blame

110 comments

By ALICE GOMSTYN, ZUNAIRA ZAKI, RICH BLAKE and NED POTTER

May 6, 2010

Stocks took a sudden, breathtaking plunge today, with the Dow Jones industrial average suddenly falling nearly 1,000 points at one point this afternoon -- before rebounding just as quickly. It closed down some 348 points, at 10,520.32.

Sources said this afternoon that a trading error at Citigroup may have led to the abrupt drop. The possibility was first reported by CNBC.

The sources told ABC News that the possible error by Citi involved what was supposed to be a $16 million trade on an S&P 500 futures-linked contract. The trade was entered in billions instead, they said.

The trade is believed to have sparked a massive sell-off in shares of Procter & Gamble, because P&G is one of the single largest components of the S&P 500 average. The sell-off was enough briefly to trigger an automatic halt to trading in Procter & Gamble stock.

The brief plunge -- more than 990 points at its low point -- was the biggest intraday point drop in the history of the Dow Jones industrial average. The major averages all closed down more than 3 percent.

Citigroup said that it was investigating the market drop but did not confirm reports of a trading error.

"We, along with the rest of the financial industry, are investigating to find the source of today's market volatility. At this point, we have no evidence that Citi was involved in any erroneous transaction," the bank said in a statement.

Procter & Gamble stock opened today at 62.68, and stayed in a narrow range until 2:28 p.m., when it suddenly plunged to 53.99 in just four minutes. By 2:54 p.m., it was back up to 61.84. It closed at 60.75.

Procter & Gamble managers said they did not know what had gone wrong.

"The stock outperformed the broader market today," the company said in a statement. "We aren't in a position to comment on the details of an individual trade today but we believe the trade was an error."

http://abcnews.go.com/Business/dow-jones-dives-european-debt-scare-shakes-us/story?id=10576136

My thoughts..................... Somebody is saying................ Oops !! and everybody else is in CYA mode...........

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No error. The MM's have been dumping their holdings and taking profits the last 2 weeks as funds have been moving in heavier. Today was more than likely their final exit. The situation with Greece will fail and they know it. They came out to quick with the whole mis-trade thing. There is no way for them to come to a conclusion like that until after all trading has settled. Also if you look all the Bluechip stocks were hit the hardest. The smallcap stocks were not hit as hard. Wall Street and our government are such crooks. People need to stop eating the c r a p that is being forced down their throats and revolt like Greece. Hit'em were it hurts. Go on a national strike for every sector every job until the government can tell us were all our money has gone and they end this roller coaster on wall street.

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i love how someone can accidentally press a button and within minutes - some people made millions and some people lost millions - our monetary system is screwed and the money system as you and i know will collapse one day in the near future before our eyes. hopefully the RV happens soon and before the collapse - and I highly suggest you take care of all debts and prepare - days like you and i have never seen are about to hit our world

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What is also interesting, is that many stock buys and sells are automated ... no human is involved, except in making the selections or programming. Wow.

I just wish I'd been on some of the low buys!

luckylucy

related story:

By Jim Gallagher

ST. LOUIS POST-DISPATCH

http://www.stltoday.com/stltoday/business/stories.nsf/0/E980DB5021AC1DAA8625771C000D7F68?OpenDocument

05/07/2010

Thursday afternoon's heart attack in the stock market was mainly a case of trading computers gone wild, market observers say. But it also reflects growing worry among investors that the Greek debt crisis could throw the world's healing financial system into a serious relapse.

The Dow Jones industrial average fell off a cliff about 1:30 p.m. Within minutes the Dow was down nearly 1,000 points before recovering most of the loss within an hour.

Observers blamed the plunge on automated trading programs that can sell millions of shares in minutes. CNBC reported that a lone trader may have sparked the panic by mistakenly typing "b" for billion instead of "m" for million, producing a massive sell order.

Whatever the trigger, a sudden drop in the market triggered a wave of automated sell orders set to go off when prices fell below certain levels. Those sell orders sent the market falling faster, triggering more automated sell orders.

"With all the electronic trading, it can just happen so fast," said Joe Williams, chief market strategist at Commerce Trust in Clayton. "People said, 'I'm not getting in front of that truck' and backed away. The buyers were not there."

When no one will buy, prices head straight down. Hedge funds then race to the rescue, placing a wave of buy orders and stopping the plunge.

"Hedge funds are very opportunistic traders. They saw this and said, 'Oh, what an overreaction,'" said Matt Jermak, senior portfolio manager for small-cap stocks at Argent Capital in Clayton.

Underlying the panic was a growing worry among investors over some European governments' ability to pay their debts, and how that problem might ricochet across the Atlantic.

The crisis occurred as the Greek parliament agreed to an austerity plan demanded by other European Union nations and the International Monetary Fund. In exchange, Greece would be rescued from probable default by a $144 billion loan.

Stock and bond traders spent this week watching Greek riots on TV, fanning doubts about whether the rescue plan would hold up.

Greece has an economy that is only 2 percent the size of the U.S., and American exports to Greece are minor.

But Portugal, Spain and Ireland are also struggling with debt, although their situation isn't nearly as dire as Greece.

All that debt is widely held by European banks. "When you add them all up, who's going to bail them all out?" said Williams of Commerce Trust.

The traders' nightmare is that a botched bailout of Greece could set off a plunge in asset prices and a financial panic of the sort that followed the collapse of Lehman Brothers in 2008.

Not knowing which player might fail, banks hoarded cash, and the credit system began to freeze up.

"It could be a small Lehman," said Ray Saleeby, who manages $190 million at Saleeby & Associates in Olivette.

"It doesn't take much to have a meltdown in the financial system."

Such a European crisis might jump the Atlantic in several ways. It would weaken American investments in Europe, and weaken large American banks holding European debt. It would also stall the European economy, cutting off a growing market for American exports.

The euro has fallen 16 percent against the dollar this year as the Greek mess has grown, making American exports more expensive abroad.

All this comes at a time when U.S. corporate profits are up sharply, and economic signs indicate a strengthening economy in America. Those are positive signs for stocks.

But some observers think U.S. stocks are overdue for a pullback after gaining 60 percent since hitting a low in March of last year.

"The market's been in the longest run we've ever had without a 10 percent correction," noted Jermak of Argent Capital.

Jermak doubts he'll be buying stocks today. The situation, he says, is just too volatile.

"Who knows what will get beamed to us over the weekend?"

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Thursday, May 06, 2010

Nasdaq Cancels Trades Made Over 20-min. Period

By John Letzing

MarketWatch Pulse

SAN FRANCISCO -- The Nasdaq OMX Group Inc. said late Thursday it will cancel all trades made earlier in the day between 2:40 p.m. Eastern time and 3 p.m. Eastern time which were "greater than or less than 60% away from the consolidated last print in that security at (2:40 p.m.) or immediately prior." Nasdaq said no technology or system issues were associated with trading Thursday afternoon that helped push U.S. markets into an alarming nosedive. Nasdaq said the trades will be canceled "on the participant's behalf," and will affect numerous stocks including those of Accenture PLC , Boston Beer Co. and many others.

Copyright © 2010 MarketWatch, Inc.

http://www.foxbusiness.com/story/nasdaq-cancels-trades--min-period/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+foxbusiness%2Flatest+%28Text+-+Latest+News%29&utm_content=Yahoo+Search+Results

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